Dr. Frankenstein Inc. (the lessor) constructs laboratory equipment with an estimated life of 12 years and leases it to Dr. Jekyll Inc. (the lessee) for a period of 10 years beginning on January 1st, 2015. The normal selling price of this equipment is $343,734 and its value at the end of the lease term is estimated to be $15,000. Jekyll agrees to make annual payments at the beginning of each year for the equipment. Jekyll also agrees to directly pay $5,000 in annual insurance costs (paid at the end of each year) and guarantees that the equipment will be worth at least $10,000 at the end of the lease. Frankenstein incurred costs of $210,000 to construct the equipment and $14,000 in negotiating and closing the lease. Frankenstein sets the annual payments based on the fair market value of the equipment and requires a 10% return on the lease. Frankenstein has determined that collectability of the lease payments is reasonably assured and that no additional costs will be incurred. Both companies have December 31st fiscal year ends and depreciate their assets using the straight-line method. Dr. Jekyll has an 11% borrowing rate, although it knows the implicit rate Frankenstein uses. The laboratory equipment has a fair market value of $7,000 at the end of the lease (this is unknown at the inception of the lease). The equipments salvage value is $2,000. This lease is noncancellable.

Required:

1. Compute the annual payments Frankenstein requires for the lease. Check the 5 criteria to determine if this lease is sales/finance or operating. Round all numbers to the nearest dollar. 2. Prepare the 10-year lease amortization schedule for the lessee (Jekyll) for both the lease liability and the right-of-use asset. Round all numbers to the nearest dollar. 3. Prepare the 10-year lease amortization schedule for the lessor (Frankenstein) for the lease receivable. Round all numbers to the nearest dollar. 4. Prepare all the lessee journal entries through 1/1/2016. Hint: include journal entries for amortization expense and any costs the lessee expenses related to the lease. 5. Prepare all the lessor journal entries through 1/1/2016. Hint: include journal entries for any costs the lessor expenses related to the lease. 6. Prepare the lessee and lessor journal entries for 12/31/2024, the date when the lease ends. ___________________________________________________________________________